Emergency wage subsidy extended

CANADA EMERGENCY WAGE SUBSIDY (CEWS)

The Canadian Emergency Wage Subsidy (CEWS) is a federal government program designed to support employers and their workers who have experienced a drop in gross revenues in recent months. The program currently comprises 21 4-week periods, from March 15, 2020 to October 23, 2021. Period 21 therefore runs from June 6, 2021 to October 23, 2021.

For the first 4 4-week periods (March 15 to July 4, 2020), this program takes the form of a wage subsidy at the rate of 75% of an employee’s eligible earnings up to an annual maximum of $58,700, representing a maximum weekly benefit of $847 per employee (i.e. 75% of $1,129).

For periods 5 and 6 (July 5 to July 1), the^er August 2 to August 29, 2020), the subsidy is at a maximum rate of 60% (basic SSUC) and will be modulated (reduced) according to the decrease in the eligible employer’s gross income for a given period. The maximum subsidy rate also decreases progressively over the periods, reaching a maximum rate of 40% for periods 8 to 17 (period from September 27, 2020 to July 3, 2021). From period 18 onwards, the maximum base rate decreases to a maximum of 35% for period 18, 25% for periods 19 and 20, and 10% for period 21. All, of course, according to the proposed new measures.

A complementary subsidy is also available for periods 5 and beyond for the hardest-hit companies, i.e. those whose gross revenues have fallen by 50% or more. This additional subsidy is based on a rate modulated according to the average loss of gross income suffered by the eligible employer. The top-up rate is up to 25% for periods 5 to 10 and 35% for periods 11 to 17. From period 18 onwards, the complementary rate is gradually reduced, reaching a maximum of 25% for period 18, 15% for periods 19 and 20, and 10% for period 21.

There is no limit to the number of employees eligible for the subsidy, or to the total amount payable.

As of June 6, 2021 (SSUC period 17), it is possible for an employer to apply for the Canadian Economic Recovery Hiring Program (PEREC) instead of the SSUC. Find out more about PEREC here.

Eligible entities

The following entities are eligible for the Canada Emergency Wage Subsidy:

1. Corporations and trusts, with the exception of a corporation whose income is exempt from Part 1 tax or a public institution;
2. Individuals (other than trusts);
3. Registered charities other than public institutions;
4. Non-profit organizations (NPOs) other than public institutions;
5. Corporations owned by an Aboriginal government that operate a business, as well as partnerships whose partners are Aboriginal governments and eligible employers;
6. Registered journalistic organizations;
7. Registered Canadian amateur athletic associations (i.e., associations responsible for promoting sport at the national level);
8. Non-public colleges and schools (for-profit or not-for-profit);
9. Partnerships where all partners qualify as eligible entities;
10. Partnerships in which 50% or less of the fair market value of the interests is owned by ineligible members;
11. Prescribed organizations.

To be eligible, the entity must also have, as at March 15, 2020, a business number used for amounts to be remitted under source deductions (business number ending with RP000). Employers who do not have a PR number on this date, but who use a payroll service provider, are also eligible for SSUC.

Lower revenues and subsidy rates

Revenues must be calculated in accordance with the entity’s usual accounting practices. However, it is possible for an entity that normally accounts for its revenues on an accrual basis to elect to account for its revenues on a cash basis, or vice versa, as the case may be. This choice must be maintained for the entire duration of the program and the calculation of all claims.

Certain exceptions to the calculation of the drop in income also apply to employers who have undergone a reorganization involving a merger or liquidation of a company, or the acquisition of all or substantially all the assets of another company.

For periods 1 to 13, the drop in income for a given period is calculated on the gross income for the month, compared with a reference period. The reference period is either the income for the same month of the previous year or the average income for January and February 2020.

From period 14 onwards, the reference period will correspond either to the income for the same month in 2019 or to the average income for January and February 2020.

The choice of comparison period (same month of 2019 or average of January and February) must be retained for periods 5 to 21. Certain exceptions may apply.

Periods 1 to 4 (March 15 to July 4, 2020)

To be eligible for SSUC for periods 1 to 4, the eligible employer must have suffered a reduction in income of 15% or more for the month of March 2020 (for period 1) and 30% or more for the month of April, May or June for periods 2, 3 and 4.

The same reference period must be used for all periods 1 to 4 to calculate the reduction in income.

When the revenue decline for a given period is reached, the company is entitled to a subsidy rate of 75% for that period.

When an entity qualifies for a given period on the basis of declining income, it automatically qualifies for the following period, even if it does not meet the declining income criterion for that period. For example, an employer who would have experienced a 32% decrease in income for the month of April 2020 compared to his reference period is eligible for period 2 due to his decrease in income for the current period and is automatically eligible for period 3 due to his eligibility for the period immediately before (i.e. period 2).

Table A: Reference periods for the basic Canada Emergency Wage Subsidy for periods 1 to 4

Periods 5 to 21 (July 5, 2020 to October 23, 2021)

For periods 5 to 21, the SSUC is made up of two components: the basic grant and the top-up grant.

The employer can also change the reference period for calculating the percentage loss for periods 5 to 21. As a result, an eligible employer could have a specific reference period for periods 1 to 4 that would be different for periods 5 to 21. This will give employers the opportunity to adjust their approach for periods 5 to 21 in the light of the new applicable provisions.

For periods 5 and beyond, an eligible employer may use the greater of the percentage decrease in earnings attributable to the current period and the decrease in earnings attributable to the previous period to determine its basic SSUC qualification and basic SSUC rate for the current period. For example, an employer with a 55% loss of income in August 2020 and a 32% loss of income in September 2020 can use its percentage loss of income in August to determine the basic subsidy attributable to September.

Here is a summary table:

Table B: Reference periods for basic SSUC for periods 5 to 21

Basic SSUC (for periods 5 to 21)

Following changes to the program for periods 5 to 21, an employer is eligible for assistance as soon as there is a decrease in gross income for a given period, regardless of the percentage decrease. In fact, the maximum subsidy for these periods is now modulated according to the given period and the income reduction incurred (as shown in Table C). To qualify for the maximum subsidy amount, employers must have experienced a 50% or greater drop in gross income over a given period. The maximum weekly earnings for calculating the credit nevertheless remain at $1,129 per employee. Consequently, the greater an employer’s loss of income over a given period, the higher the subsidy rate.

Table C: Rate structure for the basic Canada Emergency Wage Subsidy

Complementary SSUC (periods 5 to 21)

An additional subsidy amount may be claimed by employers with significant drops in income. The full bonus is available to employers who have suffered a reduction of 70% or more in their gross income. For periods 5 to 10, the complementary SSUC can reach a maximum of 25%, while for periods 11 to 17, it can reach 35%. For periods 18, 19, 20 and 21, it can reach 25%, 15%, 15% and 10% respectively. Table D below illustrates the modulation of the complementary SSUC for each period.

For periods 5 to 7, the complementary SSUC rate is determined according to the following parameters:

• • The percentage decrease in average monthly revenues for the three months preceding the given period, compared with the same three months of the previous year; OR
  • The percentage decrease in average monthly income for the three months preceding the given period compared with the average income for January and February 2020.

The choice of method explained above must be the same as that used to calculate the reduction in income determined for the basic grant. This choice must be retained for periods 5 to 21.

For periods 8 to 10, instead of using the three-month drop in income criterion for the top-up grant, as of September 27, 2020, it is possible to calculate the drop in income on the basis of the current calendar month or the previous month. Therefore, if an eligible employer has a loss of income of at least 70% in the current or previous calendar month compared with the same month in the previous year, it is eligible for a wage subsidy of 65% for the period (40% basic subsidy + 25% additional subsidy).

To ensure that this new criterion does not result in a less generous subsidy, the eligible employer is entitled to a complementary subsidy equivalent to that which it would have obtained had it used the three-month revenue decline criterion, for the period from September 27 to December 19, 2020.

For periods 11 to 21, the drop in income is determined on the basis of the current or previous calendar month.

Table D: Rate structure for the complementary Emergency Wage Subsidy

Transitional rule (exemption rule for periods 5 and 6)

For periods 5 and 6, an employer who has suffered a 30% drop in income for the current or previous month (i.e. July or June for period 5 and August or July for period 6) is entitled to apply the transitional rule. Under this rule, the employer has the right to determine the amount of SSUC for periods 5 and 6 according to the most advantageous of :

• Rules applicable to periods 1 to 4; or,
• The new rules applicable to periods 5 to 7 (including the basic SSUC and the complementary SSUC described in the following sections).

As a result, an employer who suffered a drop in income of 30% or more for the month of July 2020 would be entitled to a minimum subsidy of 75% for periods 5 and 6.

Qualifying income

To analyze the reduction in income, the term “eligible income” corresponds to :

• Income established in accordance with the company’s usual accounting practices;
• Cash receipts and other consideration received or receivable in the normal course of the entity’s business in Canada.

This amount excludes :

• Extraordinary items (e.g. grants and other assistance received from a government under COVID-19);
• Amounts obtained or derived from a person or partnership with whom the entity does not deal at arm’s length;

Several choices are also available to adjust income to better reflect the employer’s situation.

Choice of revenue recognition method : In recognition of the wide variation in the time lag between when income is earned and when it is received in certain sectors of the economy, eligible entities may make the choice to calculate eligible income on a cash basis instead of on an accrual basis (and vice versa). This choice must be maintained for all program periods.

Income calculation elections : If a group of entities normally prepares consolidated financial statements, the members of the group may jointly elect to determine their qualifying income separately to the extent that each member of the group determines its qualifying income on this basis.

If a specified entity and each member of an affiliated group of specified entities of which it is a member make a joint election to this effect, the qualifying income of the group, determined on a consolidated basis in accordance with applicable accounting practices, may be used by each member of the group.

Conversely, if a group of entities normally prepares consolidated financial statements, the members of the group may jointly elect to determine their qualifying income separately to the extent that each member of the group determines its qualifying income on that basis.

In addition, if all or substantially all of an entity’s qualifying income, i.e. 90% or more, for an eligibility period is derived from one or more specified persons or partnerships with whom it does not deal at arm’s length, and if each of these makes a joint election, additional rules will apply for calculating income. A specific calculation formula and additional details are available for this purpose.

Special rules also apply to joint ventures.

Elections applicable to NPOs and NPOs :

• For OBEs, eligible income includes income from a complementary business activity, donations and amounts received in the normal course of business.
• For NPOs, eligible income includes dues (registration or other fees) and other amounts received in the normal course of business.
• OBEs and NPOs can also choose to exclude government funding from their eligible income, for the purposes of grant calculations.

Choice of reference period: If the employer so chooses, he may use an alternative method by comparing, on a monthly basis, the eligible income for the month concerned in 2020/2021 to the average monthly eligible income for January and February 2020. As mentioned above, this choice must be made for periods 1 to 4 and/or periods 5 to 21.

For periods 1 to 4, if the employer did not operate a business or carry on normal activities on March¹, 2019, he must compare the decrease in eligible income to the average monthly eligible income for January and February 2020.

Notion of “eligible compensation” and and “base compensation

An eligible employee is an individual who is employed in Canada. Maximum weekly earnings covered by the SSUC are $1,129 per employee.

The calculation of SSUC is also influenced by the determination of “base pay”.

• Basic earnings (i.e. the weekly earnings the employee received before the crisis) are based on an average of weekly earnings paid between January¹ and March 15, 2020, excluding periods of 7 consecutive days when the employee received no earnings.
• For periods 1, 2 and 3, it is possible to elect to have the employee’s pre-crisis average weekly earnings calculated over the period from March¹ to May 31, 2019; this flexibility is mainly aimed at seasonal businesses.
• For period 4, an employee’s pre-crisis earnings are based on the average weekly earnings paid to the employee from January¹ , 2020 to March 15, 2020; from March 1, 2019 to May 31, 2019; or from March 1, 2019 to June 30, 2019;
• For periods 5 to 13, basic remuneration may be determined, at your option, according to the average weekly remuneration for one of the following periods:
  • January^1, 2020 to March 15, 2020; or
  • July^1, 2019 to December 31, 2019.
• For periods 14 to 17, basic remuneration may be determined, at your option, on the basis of the average weekly remuneration for one of the following periods:
  • January 1, 2020 to March 15, 2020; or
  • March 1, 2019 to June 30, 2019; or
  • July 1, 2019 to December 31, 2019.
• For periods 18 to 21, basic remuneration may be determined, at your option, according to the average weekly remuneration for one of the following periods:
  • January 1, 2020 to March 15, 2020; or
  • July 1, 2019 to December 31, 2019.
• For employees returning from a leave of absence such as maternity leave, parental leave, caregiver leave or long-term leave for the entire period of 1From July ¹ to March 15, 2020, basic pay can be determined on the basis of pay for the 90 days prior to the start of the leave;
• A special rule applies to employees who do not deal at arm’s length with the employer. Such employees are not eligible for the subsidy if they were not receiving compensation prior to March 15, 2020.

The notion of eligible employee and the calculation of the SSUC also depend on the employment relationship with the employee.

For periods 1 to 4

For the first four periods, eligibility for the employee compensation subsidy will be limited to employees who have not been without pay for at least 14 consecutive days during the eligibility period. In other words, employees must not have gone 14 consecutive days without pay between March 15 and April 11, April 12 and May 9, May 10 and June 6, and June 7 and July 4.

1. 75% of the amount of earnings paid for the week, up to a maximum weekly benefit of $847;
2. The lesser of the earnings paid for the week, up to the amount of $847, or 75% of the employee’s weekly earnings prior to the crisis.

Calculation example :

An employer has two employees. Their remuneration before and during the crisis remains identical. One of them earns $1,500 a week, while the other earns $800 a week. Provided the other criteria are met, the employer could receive a subsidy of $1,447 per week ($847 for the first employee and $600 for the second).

For periods 5 to 21

The definition of eligible compensation remains unchanged for periods 5 to 20. However, changes have been made to certain concepts surrounding the definition of eligible compensation.

• Eligibility criteria no longer exclude employees without pay for 14 consecutive days or more during an eligibility period;
• For arm’s-length employees who were not on paid leave, the amount of compensation is calculated exclusively on the basis of actual compensation paid, without reference to the pre-crisis compensation concept used for periods 1 to 4;
• The subsidy for non-arm’s length employees is calculated, for a maximum income of $1,129, on the lesser of :
  • Weekly remuneration
  • Average earnings before the crisis

SSUC for employees on unpaid leave

An employee is considered to be on paid leave when he is paid for a full week, but does not perform any work for his employer during that week. Statutory holidays, annual vacations and other leave normally provided by the employer are not days of leave with pay for the purpose of calculating the SSUC. In most cases, paid leave is a temporary layoff during which the employee continues to receive remuneration from the employer.

For periods 1 to 8 (periods from March 15 to December 19, 2020), the SSUC calculation for temporarily laid-off employees (on leave with pay) corresponds to the SSUC calculation for these periods.

For periods 9 and 10 (October 25, 2020 to March 13, 2021), benefits for employees on forced leave are harmonized with Employment Insurance benefits. The subsidy is therefore the lesser of the two following amounts:

• Eligible remuneration paid for the week in question;
• The higher of the following amounts :
  • 500 $;
  • 55% of base salary received prior to the crisis, up to a maximum of $573.

For example, if an employee on paid leave received weekly pay of $750 and his base pay (before the crisis) was $1,000. His employer will be able to claim a subsidy of $550 for his week of paid leave, which is the lesser of the remuneration paid ($750) and 55% of the basic remuneration (
550 $
).

For periods 11 to 21 (December 20, 2020 to September 25, 2021), benefits for employees on forced leave are still harmonized with Employment Insurance benefits. Since maximum weekly employment insurance benefits have been indexed, the maximum SSUC has also been indexed. For periods 11 to 21, the subsidy corresponds to the lesser of :

• Eligible remuneration paid for the week in question ;
• The higher of the following amounts :
  • 500 $ ;
  • 55% of the employee’s pre-crisis base salary, up to a maximum of $595.

Refund of employer contributions for employees on paid leave

For periods 1 to 21, eligible employers may also be reimbursed for certain Employment Insurance (EI), Canada Pension Plan (CPP), Quebec Pension Plan (QPP) and Quebec Parental Insurance Plan (QPIP) employer contributions for amounts paid in respect of remuneration paid to an SSUC-eligible employee for a week during which that employee is on paid leave.

The reimbursement of employer contributions is not subject to any maximum, i.e. it will be in addition to the maximum wage subsidy per week.

Employers must continue to calculate contributions on their employees’ wages and remit them to the tax authorities. The refund is issued to eligible employers at the same time as the wage subsidy is paid.

Revenu Québec has announced a Health Services Fund contribution credit for employers for their SSUC-eligible employees on paid leave for the period March 15, 2020 to March 13, 2021 (SSUC periods 1 to 13). The credit must be claimed on the 2020 Relevé 1 Summary form.

The Commission des normes, de l’équité, de la santé et de la sécurité du travail (CNESST) has announced that employers who benefit from the SSUC for employees on leave with pay do not have to pay insurance premiums to the CNESST on these employees’ remuneration.

Other considerations

How to apply

There are three ways to apply to theCRA:

• On the “My Company File” portal
• On the “Represent a customer” portal
• With the Web form

Grant funds are disbursed within 3 to 10 days of application processing. The three (3)-day period applies to companies registered with the CRA for direct deposit.

The new deadline for an eligible employer to file the application is the latest of the following dates:

• January 31, 2021;
• 180 days following the end of the period.

Consequently, SSUC applications for periods 1 to 5 must be submitted no later than January 31, 2021, while applications for periods 6 and beyond can be submitted within 6 months of the end of the period.

The person with primary responsibility for the entity’s financial activities must certify that the application is based on accurate and complete financial information. Records must be kept of income and eligible compensation calculations.

How to make an amended request

It is possible to modify a request that has already been sent to ARC. If the initial request was made via the “My company file” or “Represent a customer” portals, the modification can be made online. If the initial request was made using the Web form, the request for changes must be made by calling the CRA’s Business Enquiries service.

To make an adjustment, the following information is required:

• Payroll program account number (RP000);
• The period for which the request is adjusted;
• The new amount for each line to be adjusted.

A new attestation must be completed and signed for each modified period.

Taxation of amounts received

The wage subsidy received by an eligible entity will be considered government assistance and must be included in the employer’s taxable income in the year in which the eligibility period ends.

For example, if a company’s year-end is July 31, 2020, it will have to include the wage subsidy for periods 1 to 4 (March 15 to July 4, 2020) in its income. Period 5 (period from July 5 to August¹, 2020) will be taxed in the following year (July 31, 2021), as the last day of period 5 (August¹, 2020) is part of the company’s 2021 tax year.

The assistance received from the wage subsidy will reduce the amount of expenses eligible for other federal and provincial tax credits calculated on the same remuneration.

Interaction with other programs

An employer who has received wage subsidies under the temporary 10% wage subsidy program must reduce the amount of this other subsidy by the amount of SSUC that can be claimed during this same period.

If an employer implements the Work-Sharing program in their company, the EI benefits received by their employees will directly reduce the amount of the wage subsidy.

Register

of employers

On December 21, 2020, the CRA put online the Registry of Employers Receiving the Canada Emergency Wage Subsidy (CEWS). This tool is designed to ensure the transparency of the SSUC program. TheCRA encourages anyone who has reason to believe that an SSUC claimant is misusing it to contact the CRA’s Leads Program.

For privacy reasons, the names of individuals who have benefited from the Canada Emergency Wage Subsidy are not available in the registry.

Potential penalties

In the event that an employer fraudulently claims the subsidy and it is determined, a posteriori, that the employer was not eligible for the wage subsidy, penalties of up to 225% of the subsidy claimed, as well as imprisonment, may be applicable.

If you have any questions, please don’t hesitate to contact us!

Also worth reading, our summary of the 2021 federal budget.